Home >Companies >HDFC posts 11.6% increase in Q3 net profit

Mumbai: Housing Development Finance Corp. Ltd (HDFC), India’s largest mortgage lender, on Thursday reported an 11.6% increase in net profit for the quarter ended 31 December, as individual borrowers continued to boost its loan book.

HDFC’s stand-alone fiscal third-quarter net profit rose to 1,425.49 crore from 1,277.71 crore in the year-earlier period. The profit was in line with a Bloomberg poll of 22 analysts that had pegged it at 1,427 crore.

On a stand-alone basis, revenue increased 14.1% to 6,870.95 crore from 6,019.8 crore a year ago.

“The increase in profit was primarily attributed to the combination of an increase in the individual loan book and a slight improvement in the spreads," said Keki Mistry, vice-chairman and chief executive officer.

The growth in demand for loans from individuals will continue as the economy picks up and more jobs are created, thus improving consumer sentiment, he added.

The Indian economy grew at 4.7% in 2013-14, the slowest in a decade, and at 5.3% in the September quarter of the year to 31 March. The International Monetary Fund has projected the economy to grow at 6.3% in 2015-16.

The spread on loans for HDFC over the cost of borrowings for the nine months ended 31 December stood at 2.31%, compared with 2.25% a year ago. The spreads on individual loans was down at 1.95% from 1.97% a year earlier.

The spread improved by few basis points as HDFC replaced the borrowing through term loans by borrowing through bonds and retail deposits, according to Saday Sinha, a banking analyst at Kotak Securities.

“Although other income grew at strong pace (33.7% year-on-year), it saw an 11.7% decline quarter on quarter on back of muted fees and modest growth in income coming from surplus fund deployed with mutual funds," Sinha said.

HDFC’s loan book increased to 2.2 trillion in the December quarter, up 14.4% from 1.92 trillion a year ago, it said in a statement. The company also sold 8566 crore worth of loans in the preceding 12 months.

The growth in the individual loan book, after adding back loans sold, is 23%, while the growth in the non-individual loan portfolio was at 10%.

HDFC does not keep all loans that it originated on its books. It sells some of them to banks.

“Of the total loan book, individual loans comprise 72%. Further, 85% of the incremental growth in the loan book during the nine months ended 31 December 2014 came from individual loans," HDFC said in the statement.

The lender’s non-performing loans saw improvement during the quarter. Gross non-performing loans on 31 December were at 1,517 crore, or 0.69% of the total portfolio. A year ago, gross non-performing loans were 0.77% of the portfolio.

The non-performing loans of the individual portfolio stood at 0.53% while that of the non-individual portfolio stood at 1.03%, HDFC said.

The balance in the provision for contingencies account on 31 December stood at 2,001 crore, of which 515 crore was on account of non-performing loans and the balance 1,486 crore was in respect of general provisioning on standard loans and other provisions.

This balance in the provision for contingencies is equivalent to 0.91% of the portfolio, according to HDFC, and the company carries an additional provision of 387 crore due to regulatory requirements.

On Thursday, shares of HDFC ended at 1,309.55 on BSE, down 2.6%, while India’s benchmark Sensex rose 0.4% to close at 29,681.77 points.

The firm’s net interest margin—the difference between the yield on advances and the cost of deposits—for the nine months ended 31 December was at 3.39%. The lender’s unrealized gains on its listed investments were at 51,996 crore, which excludes the appreciation in the value of unlisted investments.

Meanwhile, HDFC’s Mistry said that the lender will target the affordable housing segment as it is a big market for the company.

HDFC has three major subsidiaries—HDFC Standard Life Insurance Co. Ltd, HDFC General Insurance Ltd and HDFC Asset Management Co. Ltd. Its main business is lending to individual home buyers and builders.

HDFC said it has agreed to sell as many as 18.95 million shares of HDFC Life Insurance to Azim Premji Trust at 105 each. This is equivalent to 0.95% of its total issued and paid-up equity capital, the company said.

During the quarter, HDFC sold nearly 12 million equity shares of 10 each of HDFC Life Insurance, which is 0.6% of the capital. The profit on the sale of investments was 112.86 crore.

HDFC said the balance shares were sold in January, and it now holds 71.42% in HDFC Life Insurance.

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